IBM sells chip business to GlobalFoundries for $1.5 billion (updated)

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For decades, IBM was synonymous with innovation, cutting-edge technology, and heady research and developments that pushed the boundaries of what computers were capable of doing. As of now, that storied legacy is coming to an end — or at the very least, changing hands. After months of will-they-won’t-they speculation, IBM and GlobalFoundries have inked a deal in which GF will take over IBM’s chip manufacturing facilities. IBM is paying GlobalFoundries around $1.5 billion in cash to take the loss-making unit off its hands.

Updated: IBM has confirmed the deal, noting that it will exclusively use GlobalFoundries for “22nm, 14nm, and 10nm semiconductors for the next 10 years.” It also says that its previously announced $3 billion investment in next-gen semiconductors over the next five years won’t be affected by the deal.

The terms of the deal state that GF will continue manufacturing Power processors for IBM for at least the next ten years and that the manufacturing centers in East Fishkill will remain open and fully staffed. Whether or not this translates into no job losses whatsoever isn’t clear, but New York State has aggressively negotiated job deals with IBM in the past and is likely to continue doing so with GlobalFoundries. It’s not clear if IBM is transferring jobs, IP, foundries, and land to GlobalFoundries or if the two manufacturers have worked out a leasing arrangement. GlobalFoundries isn’t just getting the right to build Power processors: it’s also won access to patents on Watson, IBM’s mainframe products, and the expertise of thousands of engineers across New York State.

It’s certainly interesting that IBM, whose foundries have always been regarded as strong, if small, is paying GlobalFoundries $1.5 billion in cash — $1.3 billion net, including a $200 million transfer of unspecific assets in the other direction — over three years to take over its own business segment. IBM’s chip-making unit reportedly makes a big loss — as much as $1.5 billion per year — which is probably why CEO Ginni Rometty, who is keen to boost the company’s profits, is jettisoning it.

A murky future

For years, Samsung, IBM, and GlobalFoundries prominently positioned themselves as a partnership that would challenge TSMC and Intel through the Common Platform — a set of mutually agreed-upon manufacturing characteristics that would make it easier for customers to ramp products at different foundries and leverage the IP assets of all three semiconductor companies. Rumors earlier this year pointed towards an end for that project, and such a move now seems inevitable. Now that GlobalFoundries owns IBM’s fabs, and has licensed Samsung’s 14nm process, the entire Common Platform concept is simultaneously fulfilled and outdated.

IBM Research in Yorktown Heights, New York, will hopefully be keeping its chip fab facilities

With that said, however, we’re a long way from the heady days of 2010 and 2011 when GF confidently predicted its own 28nm ascendance and strong competition against TSMC. The company has been quiet about its own 20nm plans and customers — it’s assumed that AMD is doing 20nm work there, and we know that the 14nm deal with Samsung is ramping up strong thanks to discussions at ARM’s TechCon earlier this month, but specific details remain elusive. Integrating new business units always takes time and causes a certain degree of disruption — whether this will have a knock-on effect on GF’s 20nm or 14nm roadmaps isn’t known. It’s also not clear if this means GF will transition IBM’s foundries to more advanced process nodes, or what the long-term roadmap for those facilities is.

Presumably this move won’t change anything related to IBM’s OpenPower initiative — if anything, GF may have freedom to build Power cores for a wider audience. More details on this announcement should be available after IBM’s quarterly conference call this morning, but both Big Blue and GlobalFoundries are currently maintaining radio silence.

Tagged In

I wonder if IBM had to sign a take-or-pay wafer obligation as well… =D

Does GloFo even have a 20nm rollout planned? I was under the impression that AMD’s Puma+ chips are being fabbed at TSMC, and that the licensing of Samsung’s 14nm-LPE was yet another admission of failure.

szatkus

There were some rumors that GF has cancelled 20nm.

pelov lov

It would only make sense given that they licensed the 14nm from Samsung in order to expedite the subsequent node. The 14nm-LPE uses Samsung’s 20nm BEOL as well, so I’m not sure how GloFo would still have their own 20nm process and yet license Samsung’s 14nm.

AMD’s roadmap also seems to point to a cancellation/delay as well. Their Carrizo APUs will still be on 28nm while the TSMC products, small APUs and GPUs, are transitioning to 20nm.

Joel Hruska

Two things:

1). AMD’s socketed Jaguar APUs (the little $50 chips) are made at GF, not TSMC. This was an undiscussed change, but if you actually look at the chips, they’re “Made in Germany.” That means AMD’s Project Skybridge could be a GF chip *or* a TSMC chip. I don’t think they’ve said. I don’t think we know where the ARM chips on 20nm are being built, either. We know AMD paid GF for what was pointedly referred to as a one-time exception to do some manufacturing with TSMC; we don’t know if these requirements have been waived.

2). GF is still advertising 20nm as leading edge capacity. Granted that doesn’t mean they won’t pull it, but since they’ve already updated their 14nm to 14nm LPP / LPE as opposed to 14nm XM, I suspect they would’ve killed it by now if they were going to.

dc

what a disaster for IBM. It doesn’t control its production anymore. We saw how that worked out for AMD. AMD didn’t have much choice….. IBM chose to do this… ridiculous. Time to short Big Blue.

Eh. AMD and IBM are SOOOO different it’s not even worth toying with that comparison. IBM makes most of its money from services, patent licensing, and other non-chip-related stuff. Yes, this will affect the Power8 chips — but I’m sure there are strong agreements in place to make sure that Power8 isn’t affected. (It seems there’s a 10-year deal in place to this effect.)

dc

hmmmm…… my big problem with service companies, particularly stand alone service companies (meaning without a hardware tie in) is that it is relatively easy for competitors to come in and undercut them. Another way to think about it is like this, if I buy 10,000,000 dollars worth of hardware from a company, I’m probably going to stick with them for awhile. On the other hand, if I’m just using a companies software or cloud services, it isn’t that hard to quickly jump ship to a lower cost, or more innovative, competitor. To me it seems volatile. And volatility isn’t what one associates with premium value stocks. But hey if you don’t agree with me, IBM is down today, so its a great buying opportunity for you.

Rich

There’s a big difference between a fab and a company that has fabs to sell their computers.

When AMD owned their own fabs, they were never two nodes behind. Why? Because it was in their best interest to keep advancing the process as quickly as possible, regardless of what other fabs were doing. It gave them a competitive edge, or removed one, with their products.

A fab company pays a lot of money to develop each process, and their best interest is only advancing it as slowly as they possibly can, based on competition with other fabs. Going faster gets them nothing, and costs them more money.

I already gave you proof with AMD now much further behind than they ever were when they owned fabs, but if you need more, just look at tiny IBM! They are already putting out 22nm FinFet processors, whereas MUCH larger fabs like TSMC, Samsung, and GF are not. Why? Their motivation is different.

As someone that loves technology, this is a dark day. On the other hand, it seemed inevitable IBM had to lose the fabs due to their lack of scale. It’s good for AMD, since GF gets better technology than they had, but it happened so late it’s hard to believe AMD would move anything to IBM’s node, since the design time would make it dubious, assuming the 16/14nm node comes out when planned.

szatkus

It’s 22nm SOI, not FinFET.

Joel Hruska

You have overstated your own case rather drastically.

AMD got rid of its fabs in 2009 because it could not afford the intensive capital upgrade required to build them and continue investing in the bring-up of Saratoga.

AMD is now further behind that it was because it signed agreements with GF that mandated the use of GF for certain products. GF then had enormous manufacturing problems. Keep in mind that this was just 2011 — two years later, the overwhelming majority of AMD’s engineers were still GF employees, the company was headed by a former AMD employee, and since all of GF’s fabs had been originally AMD fabs, it had almost no silicon lines devoted to any other customers.

In other words, it was largely ex-AMD people running an ex-AMD operation that ran into enormous problems despite heavy funding from Arab oil conglomerates. GF *foundered* on that. It never took the 28nm share it expected back when 28nm was raking in all the cash. Its 14nm XM ramp has been canceled. There’s simply no proof to the argument that going to a foundry model was the cause of AMD’s problems, particularly when TSMC has been able to ramp up first Bobcat and then Jaguar.

AMD’s products have not been selling well enough to make it worthwhile for the company to invest in ramping custom silicon lines at GF and it can’t afford to pay GF to push production farther — but if AMD hadn’t made that spinoff when it did, it would be in even worse shape today — if it still existed at all.

Rich

You missed the point.

The point wasn’t whether AMD could afford to use keep the fab, or whether their problems were caused by it, or something else. Nothing like that, and it wasn’t even implied.

The point was that while AMD could afford the fabs, they pushed to the next node faster, because there was a material benefit to their products. The product was the dog, the fab the tail.

It wasn’t about AMD, it was about the difference between a company that sold chips that had a fab, and just a fab. The former has more motivation to push the fab faster, the latter to get their investment out of it.

IBM could afford to keep its fabs, no question there. Whether it made sense was another question. The fact their fabs are more capable than TSMC and GloFlo with their 22nm process again indicates how a chip maker pushes faster than would make sense from a purely fabrication perspective.

Joel Hruska

The foundry that hits the node first historically captures 75-80% of the profits from the entire node. There is an enormous first-mover advantage in foundry sales, and it comes from being first to the next node.

This is *why* Samsung is skipping 20nm. They’ve talked about it explicitly and with reference to their own products. If you want to make money as a foundry, you capture the node first.

GF and TSMC have every bit as much incentive as AMD or Intel.

ronch

And if within those ten years it turns out GF couldn’t make chips for IBM well enough (as AMD found out after selling their fabs to GF), and IBM decides to pull out and look for a new manufacturing partner, GF will pull a wafer supply agreement out of thin air that’s guaranteed to charge IBM ‘one time payments’ quarter after quarter. You’re screwed, IBM.

ronch

And haven’t they seen how AMD also sold its fabs to GF and now GF is screwing them? To make things WORSE, IBM IS PAYING GF to take its fabs! WTF.

Dozerman

Big, but not unexpected. All I can say at this point is “Good luck GF”.

How can someone sell something to someone else and pay instead of being paid?

Techutante

Here, this is costing us 1.5 billion dollars a year to run. If you agree
to keep running it for a decade, it’s yours! Also we already pretty
much paid for this for next year, so you can have that too. Cost, 1.5
billion over 3 years, savings 1.5 billion a year forever!

ronch

But they could have just closed shop and kept the $1.5B. That would still let them save $1.5B a year.

Joel Hruska

They are legally circumscribed from this by the State of New York. I do not doubt they are also on the hook to customers for long-term support contracts.

Techutante

Yeah, I think they probably had production contracts to fulfill. Breaching a production contract could cost them a lot more than they were looking to lose. This way is a win-win for them, since they spin off the whole arm of the company along with the contracted obligations of production. They can start with a clean slate if they want to build a new facility now, and it won’t immediately be losing money. Not so much worry about who would lose their jobs, unless those jobs were also part of a contract with the local government. A lot of times a company like IBM or INTEL will get huge tax breaks on property or whatever from a place in exchange for guaranteed jobs for X amount of years. Maybe free land to build a factory on that reverts to the state if the contract is voided.

ronch

I bet GF talked IBM into paying them to take the fabs off their hands. Those Arabs sure are a shrewd bunch. They keep screwing AMD, now they’re screwing IBM as well.

And if IBM is just after cutting its losses, why not just shutter the fabs and keep $1.5B? Are they really that concerned about people losing their jobs?

And if I was running AMD, I’d offer to take the fabs and the cash, then just shutter the fabs or run them to bankruptcy… or just have fabs of their own again. The first and second options are undoubtedly ruthless, but AMD is fighting to survive, plus they’ll have the chance to be an IDM again.

Joel Hruska

Ronch, I really hope you’re kidding, because racism like this really isn’t appropriate.

Arabs are not “A shrewd bunch.” From GF’s perspective (dating back to the post-2009) spinoff), AMD was partly to blame for its own lousy surroundings. When AMD spun GF off, it remained the companies sole partner for years while GF ramped other nodes and production lines. AMD, if you may recall, made aggressive statements and claims about its Bulldozer line.

In 2010, yes, GF was having major problems getting Llano out the door thanks to difficulties with the GPU implementation on 32nm. It had no such problems with Bulldozer and could’ve launched the chip much earlier, but AMD kept respinning the die, trying to get better performance out of it. Then BD launches and the performance and thermals are terrible.

Put yourself in GF’s shoes. Your primary partner, with an architecture that was supposed to kick ass and take names, has just completely dropped the ball.What do you think that does to YOUR roadmaps, your revenue projections, your bottom line?

I view that bill as squared up, largely because GF took AMD to the cleaners the following year, but both companies let each *other* down. AMD’s wafer cutbacks and failure to sell through hurt GF, and yes, GF’s production run problems hurt AMD.

james johnson

They are giving up patents to Watsons’ chips… I seriously thought Watson was the future of parallel computing and true AI.

SOI never fulfilled the hype. And IBM couldn’t spend enough money on competing against rest of fabs. During next years Glofo will do chips for IBM. The question now is if IBM will abandon chips definitively.

Sorin

another one bites the dust… it’s a shame, considering IBM was one of (if not the) oldest and one of the founder companies in the industry

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